Elton Cane

Elton Cane - writer & tech geek

IBM results are good news for fintech sector

18 January 2008 | 4261 views | 1

After previewing its fourth quarter results on Monday, IBM yesterday provided more details yesterday, which provided a boost for the tech sector generally. And although it may be too early to tell, they could also show that any falls in bank tech spending
resulting from the current financial crisis aren't too severe (yet).

The company saw earnings per share for the quarter of $2.80, beating analysts' forecast of $2.60 and representing a 24% increase over the same period in 2006.

The company said growth was especially strong in emerging markets and in its services and software groups, although the company's System z mainframe business didn't perform as well due to a new release on the horizon.

But the most interesting section for us in the
earnings call was when CFO Mark Loughridge outlined perfomance in its financial services vertical:

We had growth in all sectors with particular strength in Communications but let me spend a minute on Financial Services sector. This quarter, growth in Financial Services was 11%, or 5% at constant currency. This is consistent with IBM’s total sector
performance and also more in line with FSS growth in the first half of the year.

Similar to last quarter, by brand, the largest impact was in System z worldwide as customers look forward to the new product. So this impact was more a function of the product transition than the sector.

By geography the U.S., which represents about 25% of the total, was flat. But 75% of the Financial Services business is outside the U.S., and was up 15%, or 6% at constant currency. So our very good performance outside of the U.S. drove solid results
in the sector.

Can we take IBM's results as an indicator of wider financial technology spending worldwide? Well, the company is by revenue terms far and away the largest supplier of technology and services to the industry. But when faced with budget pressures, perhaps
banks are more likely to go with "safe" purchase decisions, required upgrades on critical infrastructure licenses, and cost-saving outsourcing agreements -- all areas that play to IBM's strengths.

It's interesting to note that in the US, where bank losses have been the most severe, tech spending has already gone flat, while other geographies continued to grow. Whether that continues to be the case throughout this year will depend largely on whether
Western Europe and the US enter into recession, and how well banks outside the US are insulated from the ongoing deflation of the credit bubble.